Pakistan Expected to Increase Gas Tariffs to Meet IMF Condition
The caretaker government of Pakistan is poised to approve a significant increase in gas tariffs, marking one of several challenging measures Islamabad must undertake to fulfill the fiscal tightening conditions set by the International Monetary Fund (IMF). This move, anticipated by Pakistani experts, is deemed "painful for the people." Liquidity Strain in Power Sector: The […]
The caretaker government of Pakistan is poised to approve a significant increase in gas tariffs, marking one of several challenging measures Islamabad must undertake to fulfill the fiscal tightening conditions set by the International Monetary Fund (IMF). This move, anticipated by Pakistani experts, is deemed "painful for the people."
- Liquidity Strain in Power Sector: The IMF has highlighted acute liquidity conditions in Pakistan's power sector, characterized by accumulating arrears and frequent power outages. These arrears, stemming from subsidies and unpaid bills, have been a focal point during eight months of negotiations between the IMF and Islamabad, culminating in a $3 billion bailout package last year.
- Summary Consideration by Economic Coordination Committee (ECC): The Petroleum Division presented a summary on natural gas sale pricing to the Economic Coordination Committee (ECC) of the Pakistani cabinet. Subsequently, the ECC decided on a revision in prices to align with the revenue requirements of gas supply companies, as per the finance ministry.
- Revenue Requirements: The estimated revenue requirements of Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGC) stand at approximately Rs592 billion ($2.12 billion) and Rs310 billion ($1.11 billion) respectively, according to the Petroleum Division.
- Tariff Hike Approval Timing: The anticipated approval for the gas tariff hike, the second under the caretaker government since assuming office last August, is expected shortly before the formation of a new government following general elections on Feb. 8.
- Impact on Consumers: Financial experts project that natural gas tariffs could surge by up to 67 percent for certain consumer categories based on the oil and gas sector regulator's assessment. The weighted average impact of the hike is estimated at 11 percent across consumer categories.
- IMF Conditionality: The determination of revenue requirements for Sui companies serves as a benchmark for assessing Pakistan's performance by the IMF. The gas price revisions are integral to meeting the IMF's conditions, reflecting commitments outlined in the Memorandum of Economic and Financial Policies.
- Structural Transformation Imperative: Dr. Khaqan Najeeb, a former adviser to the finance ministry, emphasizes the necessity of reviewing gas prices in alignment with IMF commitments. While acknowledging the pain for the populace, he underscores the importance of these measures for Pakistan's fiscal sustainability and the completion of the IMF bailout program.
- Inflationary Pressures: Pakistan's inflation rate reached historic highs in recent months, driven partly by energy price hikes. The central bank has revised its inflation forecast upwards, reflecting the broader economic challenges exacerbated by rising energy costs.
- Industrial Concerns: Pakistani industrialists express apprehensions over the significant surge in domestic gas rates for industry, highlighting its adverse impact on export competitiveness and investment in the export sector.
The impending increase in gas tariffs underscores Pakistan's ongoing efforts to address fiscal challenges and meet IMF conditions, albeit at the expense of heightened economic strain on its populace and industries.
